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Want Market Share? It’ll Cost You

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Multi channel holiday shopping data

As the final stretch of the holiday 2016 selling season approaches, many retailers are facing the reality that maintaining share in the low-growth, highly promotional apparel market is a costly proposition.

“Apparel retailers are heading toward the finish line of the 2016 holiday season with a few new bruises and a startling realization of what consumers expect,” said Sarah Engel, SVP of global marketing at DynamicAction.

According to the firm’s Holiday 2016 Retail Index, an analysis of more than $6 billion in online consumer transactions in North America between Nov. 1 and Dec. 5, consumers are buying more units of apparel but spending less for each, a result of the abundant promotions and markdowns being used to entice shoppers.

Engel warns that this will affect retailer profitability over the next few quarters if not addressed decisively and quickly.

“The most vital trend to heed is the over-reliance on promotions to drive customer acquisition and conversion. Although they sold more individual units (up 8 percent compared to last year), apparel retailers saw their average order value and average selling price headed in the wrong direction over the holidays. Since Thanksgiving week, average order is down 2 percent versus 2015, and average selling price is down 5 percent.”

Online sales of apparel and accessories, which according to a recent report by Goldman Sachs are growing at around 20 percent annually, are expected to reach almost $50 billion this year, or about 17 percent of the total market, up from 14 percent in 2015. Retailers are taking an “if you can’t beat ‘em, join ‘em” defense against Amazon’s expedited free shipping, turning to flashy, profit-eroding promotions to gain the attention of shoppers in a crowded marketplace.

Orders using a promotion (20 percent off or buy one get one – usually applied at the point of checkout, either automatically or as the shopper enters a promotion code) were up significantly over the holiday period, up 52 percent in 2016 versus 2015, whereas orders using a markdown, or straight price cut, were down slightly (6 percent) for the holiday season 2016 versus 2015.

“From the 30 percent off discount to the buy one, get one offer, apparel retailers have trained shoppers to expect and wait for a bigger, better deal,” Engel observed. “And, in return, the retailers have been trained by shoppers that they can’t break through the clutter of email inboxes and social media overload without a more enticing deeper discount that gives the shopping the emotional rush of feeling that she got a good deal. Promotions are an addiction that retailers will have to recover from in order to survive and thrive in the year ahead.”

To do this, retailers will need true customer understanding that includes having one view of the customer across channels. Only with this level of insight can an apparel retailer understand what – beyond deep discounts – will motivate the shopper, how to keep her coming back to buy more frequently, and how to increase lifetime value and loyalty.

“Successful retailers will embrace the fact that promotions are the new expectation and find ways to promote more wisely,” Engel said. “Some of the more successful promotions this season (for both the shopper and the retailer) were those that offered an exclusive service or curated collection as the promotion, or offered low cost, but high perceived value gifts with purchase.”

Engel recommends that retailers keep a close eye on their returns data across channels – return rates, return codes, customer feedback, user generated content – as they are just now headed into the heaviest returns period of the year, with the value of returns already up an average 26 percent during the holiday season 2016 compared to 2015.

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